UK: Setting Ideas To Work

Advances in science and technology are widely seen as holding
the secret to the economic success of nations. Breakthroughs in
natural sciences and inventions such as the steam engine,
electricity and the internet have transformed human welfare. From
Archimedes to Berners-Lee, society celebrates great inventors and
scientists.

But this is only part of the story. Russia provides a case study
in how brilliance in science does not always translate into
economic success.

Professor Loren Graham, a historian of science at the
Massachusetts Institute of Technology (MIT), is an authority on the
development of science in Russia and recently published a book,
"Lonely Ideas", on the topic. He is intrigued by the fact
that, despite producing brilliant scientists and fundamental
technological innovations, Russia has often been unsuccessful in
commercialising them.

Russians are responsible for some of the most important
scientific and technological advances. Russia created Mir, the
world's first modular space station, invented lasers, made, and
continues to make, fundamental contributions to computing, and came
up with the basic theory behind fracking.

But Graham explains that these ideas were developed and
commercialised in the West. Lasers, an indispensable modern
technology, used in cameras, printers and a range of medical
equipment, provide a case study. Two Russians, Alexander
Prokhorov and Nikolai Basov, won the Nobel prize for developing
lasers in the 50s. However, Charles Townes, an American physicist,
independently and concurrently developed laser technology, and won
a Nobel prize, but also took out a patent on lasers and laid the
foundations of a new and highly productive industry.

Prokhorov, on the other hand, never thought of starting a
company. And even if he had, it would have been next to impossible
for him to do so, as there was no patent system or investors in the
then Soviet Union.

It is a similar story with the radio. Alexander Popov was a
Russian pioneer of radio whose work influenced Marconi. But it was
Marconi who won the Nobel Prize for radio and patented and
commercialised his work.

Despite seminal breakthroughs in computing by Russians, we
don't find ourselves queuing outside stores to buy the latest
Russian-made phones or tablets. And despite having developed the
theory behind fracking in the fifties, Russians are now learning
how to frack reservoirs from American and British oil
companies.

The environment required to make a commercial success of
technology in Russia was lacking. The first characteristic of such
an environment is the presence of strong institutions and a
credible legal system. Another is supporting and celebrating
entrepreneurs. Steve Jobs, Bill Gates and Thomas Edison are, for
instance, icons in the US. Governments in the West tend to be
supportive of entrepreneurs and rarely see them as a threat.

Russia tends to celebrate scientists for their academic
excellence, not as contributors to the nation's economic
success.

Unsurprisingly, some Russian scientists who have had the
greatest impact have achieved it abroad. Alexander Ponyatov, the
inventor of the videotape machine, Igor Sikorsky, the pioneer of
the helicopter, and Vladimir Zvorykin, a leading figure in the
development of colour television, all achieved their greatest
successes in the US.

The World Economic Forum's (WEF) latest Global
Competitiveness Report highlights the divide in Russia between the
environment for business and for science.

The Report ranks Russia 88th out of 138 nations on the strength
of institutions, 117th on intellectual property protection and
108th on financial market development. But it ranks 32nd on higher
education and training and 18th in tertiary education enrollment.
In its latest Executive Opinion Survey, the WEF has identified
corruption, access to financing, and tax regulations as the biggest
impediments to doing business in Russia.

MIT's Graham argues that the level of risk and corruption in
business means that Russian scientists see it as somewhat
disreputable and unworthy of an intellectual's efforts.

This difficulty in turning ideas into businesses means that
Russia is heavily dependent on resources. Various estimates peg its
hydrocarbon production to between 25 and 30% of GDP. The Carnegie
Moscow Center, a think tank, estimates that more than half of
Russia's budget revenues derive from taxes on oil and gas
extraction and that commodities contribute to around two-thirds of
Russian exports.

The slump in the oil price, driven partly by US output from
fracking as well as Saudi increased production, has knocked Russian
growth prospects. Russian growth, which averaged 7.0% a year
between 2000 and 2008, is forecast by the IMF to average just 1.0%
a year between 2016 and 2021.

Russia has certainly had successes in commercialising
technology, some of them software companies, such as the
global software security group Kaspersky Lab, and the successful
Russian social network, VKontakte. Unlike physical objects,
intellectual products such as software or music can be created and
sold without requiring a physical factory or storefront. The
software business is perhaps less influenced by the social and
legal environment than the production of physical goods.

The importance of making an economic success of its scientific
brilliance is not lost on Russia's leaders. Vladimir Putin has
said in several speeches that Russia must diversify its economy,
and plans are afoot to make important changes to the patent system
and to the rights of investors in Russia.

The Russian government is also funding the development of
technological and business hubs such as in Skolkovo, in an attempt
to create a Russian Silicon Valley. But creating a favourable
environment for business is a vast endeavor and a product, not just
of government policy, but of culture, politics and society.

There are lessons for Western policymakers in all of this.
Capitalising on the so-called third industrial revolution, of
artificial intelligence, automation and new materials, requires
excellence in science and research. But Russia's experience
demonstrates that the wider environment matters at least as
much.

PS – Much of the media discussion of the US Presidential
election campaign has focussed on an anti-establishment backlash
against globalisation, low growth and economic decline. The reality
seems a bit more nuanced. Americans actually seem pretty upbeat
about the current state of the economy. More Americans than at any
time in Barack Obama's presidency say things in the US are
going well. Consumer sentiment is running at levels last seen
before the financial crisis, back in 2007. Despite the often
charged election rhetoric about migration and race, survey data
shows that American's are on the whole more supportive of
racial diversity than Europeans – with polling from Pew
Research Centre showing 58% think diversity makes the US a better
place to live. Globalisation is hardly a popular political cause in
the US, but Gallup shows that a greater proportion of Americans
(58%) believe foreign trade represents an opportunity not a threat
than any time since 1992.

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